NAB’s plans to divest from most of its MLC subsidiary will likely hit snags as its advice business becomes unattractive to private and public investors, says an M&A analyst.
Speaking to InvestorDaily at the AIOFP 20th anniversary conference in New York, Forte Group managing director Steve Prendeville, a mergers and acquisitions consultant and broker, said NAB’s announced divestment from MLC faces major risks.
“The issue or problem they are going to face is that their advice business component has been purely a distribution vehicle; it has not been a profit centre in its own right,” Mr Prendeville said.
“The margins are all in the recovery on product manufacturing. The whole industry has moved to fee for service, which [requires] client engagement. [The institutions] still haven’t [moved to fee for service] as we can see with the royal commission. They haven't evolved as the rest of the industry had to.”
The advice component of MLC is likely to be particularly unpalatable to retail investors were the bank to embark on an initial public offer, Mr Prendeville said, since it has been subject to intense mainstream media coverage courtesy of the royal commission.
Private equity investment or a “trade sale” is also rendered less likely by the migration of key practices and subsidiaries such as Godfrey Pembroke away from MLC and the reputation damage caused by the royal commission, he said.
While platforms such as Netwealth and Hub24 have executed successful listings on the ASX in recent years, Mr Prendeville said not even MLC’s investment platform business will improve the outlook.
“MLC is a first generation masterfund, wrap-style platform,” he said. “It isn't a Netwealth or Hub . It's a patch job over old architecture. If they try to position it that way to investors, it wont work.”
At the same time, however, Mr Prendeville acknowledged that some banks may list funds management assets – as opposed to financial advice and wealth management – and may have more success with this strategy.
NAB chief customer officer for wealth management and consumer banking Andrew Hagger first revealed the impending divestment from NAB during his royal commission testimony in May, with the bank subsequently confirming its ambitions publicly.
An “equity event” of some kind is slated for late 2019.